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Friday, August 16, 2013

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This article is mostly about the fact that the Fed has to turn over the majority of its profits to the Treasury and how this fact has actually helped reduce the deficit. Nothing really surprising or earth-shattering if you have any idea how the Fed works.

And apparently, there are plenty of people who don't understand how the Fed works. Just take a look at the comments. Of course, we could hypothesize that at least some of these people don't really believe what they have commented, but are trolling. I personally don't like trolling because: 1) People say they are trolling to cover for their own lack of knowledge, and 2) Trolling contributes to the spread of a whole lot of B.S. since at least some people won't know any better and proceed to repeat what they read elsewhere. So, here are my responses to some of the comments.

What a bunch of lies.The government creates the assets and creates the money to buy the created assets. It controls price of the assets it buy and it controls the interest it pays itself. Then, it calls all of it profit. It is like Enron with no accounting rules.

I'm not sure what "lies" this author is talking about. It may very well be similar to Enron, except that Enron didn't have the ability to print its own currency. Now, I'm not taking the stance that everything the Fed has done is beyond question; as long as those assets remain on the Fed balance sheet, we don't know what the final outcome will be. The Fed may have to take a loss on some of those assets, but to my knowledge, there is no reason to assume that the Fed will ever have to sell any of its assets. But there are certainly scenarios under which the Fed might need to sell assets at a loss. This doesn't make anything a lie though.

How many Fed Bucks to date? $4 trillion? How many jobs? Follow the money....it sure looks like it gets pumped into the giant siphon of Wall Street. It's nice to know that the very richest on the planet will continue to be set for life. It's not so nice to know that the rest of the country isn't getting the same benefit.

Yeah, it may look that way, but that's not Fed money getting pumped into Wall Street. The interesting thing is that the Fed money is for the most part, sitting in bank reserves, earning interest at 0.25%. This is why we don't have hyperinflation, at least not right now. Could we? Yes. The rally in stocks is from investors pumping more money into the stock market. Some of that money is going there because there are no real returns anywhere else. And for the record, "the very richest on the planet" will continue to be set for life regardless of what the Fed does, pretty much.

I just don't understand why people want to blame the Fed for the increasing disparity in incomes here in the U.S. Fed policy has also helped contribute to the rebound in home prices, which has benefited the middle-class as well as anyone else, and perhaps more so.

Jerry- Bernanke missed the biggest economic event of his lifetime (housing bubble) with all those credentials while Ron Paul, with no formal training in economics, called the bursing of the housing bubble exactly as it would happen way back in 2003, yet Congress refused to listen.

This type of argument always makes me laugh because there's always someone who "calls" the future, like Ron Paul apparently did, "way back in 2003." Say a bad thing is going to happen long enough, and sooner or later you'll be right. Worse, then lots of people will think you're a genius. I'm not convinced that anyone "missed" the housing bubble. The Fed was raising interest rates, but mortgage rates stayed stubbornly low, fueling the housing bubble. Talking from experience, I can say that there were a lot of people that said the Fed needed to LOWER interest rates, and that would fix everything. I find it doubtful that Ron Paul called the bursting of the housing bubble "exactly as it would happen" either. I'm not sure Ron Paul can explain exactly what happened now. And I'll bet that Ron Paul wasn't speaking his own mind when he "called" the housing bubble; I suspect he heard it from someone else, but of course, it's Ron Paul that's a genius. Nothing against Ron Paul - I'm not sure there's a single person who can explain exactly what happened, although there are plenty of people who probably think they know exactly what happened.

So, let me take this opportunity to make a place in history for myself: There's going to be a recession, and it's going to be bad. Now, I've just got to sit back and wait. Sooner or later, I'll be right.

I love coming here daily to hear the arm chair macro experts say where Ben is getting it wrong. Ben is brighter than 99.5% of the population and is an expert in his field.

Me too (referring to the coming here daily part, not the brighter than 99.5% part). But economics is so simple, even a caveman can do it, so everyone is clearly an expert because they took economics in high school. Just like that high school financial literacy class makes everyone a financial genius. Just ask people and most will tell you that they're more knowledgeable about economics, finance, and likely whatever other subject they took a class in than the average person is. Oh yeah. And they're better drivers than average too. Which makes us humans, as a species, pretty damn special. Way better than your average species.

Well, this has been fun, but I've really got to get to work. Have a great day everyone, and leave a comment so I know there are some real people reading this stuff.

Disclaimer

I am not a registered investment advisor or broker. Blog posts are my own opinion, derived in good faith from public information believed to be accurate at the time of posting. No warranty is made regarding the accuracy or completeness of information contained herein. Market Dissection posts are provided for informational purposes only. Before you invest in any security, you should conduct your own research and due diligence, and seek the advice of a qualified investment professional.